Wage freeze: 2009 Archives

It's time for public employees to join the real world in which there are no guaranties of employment or retirement.

In fiscal year 2011 the Town of Chatham has no money to support fat pay increases for public employees such as they are enjoying in this fiscal year (July 1-June 30) -- 6%, something virtually no one in the private sector has. The overspending in FY10 means there is no choice but a salary freeze in FY11.

But real reform is needed. The days of fat built-in salaries and benefits are over.

The New York pension situation the following article describes is pretty much the same for Chatham.

In New York (as in almost every state), public-employees' pensions are defined-benefit -- meaning that the government guarantees an income stream based on peak salaries and career longevity. By private-sector standards, benefit levels are extraordinary: Our state and local government employees (and employees of public authorities) can retire earlier, with larger pensions, than the vast majority of those who pay their salaries.

In Massachusetts, some reforms seeking to end abuses enhancing pension benefits at the state level became law just a few days ago. Predictably, the public unions sued the state to hold on to these abusive practices.

In Chatham, pay packages for full time public employees provide them more money than what more than half the households live on. And their pensions start earlier and are larger than the [retirement benefits of the] vast majority of those who pay their salaries.

On public employee pensions, real reform is needed "by essentially throwing out the outmoded defined-benefits model for future employees."

Chatham should "follow the lead of a few states, including Michigan, that have shifted nonuniformed government workers to defined-contribution accounts -- like the 401(k) plans that have come to dominate the private sector."

Reform has to start sometime, somewhere in the Cape towns. It can start in Chatham. Other Cape towns are sure to follow Chatham's lead.

With a defined-contribution retirement system, taxpayers would no longer bear all the financial risks associated with providing guaranteed pension benefits. For the first time, public-pension costs would become both predictable and easily understandable -- and the real costs of proposed benefit increases would be transparent.

There are plenty of other areas that need reform that will bring public employee compensation into line with private sector reality. Let the taxpayers' voices be heard.

Read the whole thing.

DEFUSE THE PENSION BOMB
E.J. MacMahon
New York Daily News
July 9, 2009

NEW York's public-pension system has become the epicenter of an in fluence-peddling scandal that has at tracted the attention of the SEC as well as state Attorney General Andrew Cuomo. But the millions in shady "placement fees" pocketed by a few politically connected middlemen are small change compared with the mushrooming cost of lavish pension benefits for state and local government retirees.

Keeping these retirees in clover could require $5.4 billion more from local taxpayers outside New York City over the next five years, if investment returns follow one scenario floated by the state comptroller's office. And the real scandal is that politicians are reluctant to do anything about it.

In New York (as in almost every state), public-employees' pensions are defined-benefit -- meaning that the government guarantees an income stream based on peak salaries and career longevity. By private-sector standards, benefit levels are extraordinary: Our state and local government employees (and employees of public authorities) can retire earlier, with larger pensions, than the vast majority of those who pay their salaries.

Taxpayers must shoulder the risks of covering these promised benefits. The pensions are paid out of gigantic pooled retirement funds, to which government employers contribute varying amounts, depending on actuarial assumptions and market fluctuations.

Since 2000, the combined yearly pension costs for all governments in New York (including New York City), have risen from slightly under $1 billion to nearly $10 billion -- reflecting both market conditions and benefit increases effective at the beginning of that period.

New York City's annual pension contributions alone are up more than $3 billion over the last five years -- and projected to rise by another $1 billion over the next three. Annual pension bills for the state and its local subdivisions could easily double or triple by 2015.
Under the state Constitution, pension benefits can't be "diminished or impaired" for any current member of a public-retirement system in New York. So it will be hard in the short term to stem the tide of mounting pension costs. The reform debate is really about compensation for the next generation of government workers -- and the long-term impact they'll have on state and local finances.

Far-fetched as it may seem, given state lawmakers' shameless pandering to unions in recent years, there is precedent for reform: During the '70s fiscal crisis, the Legislature managed to scale back pension benefits for new public employees. But the unions spent most of the next 25 years successfully clawing back much of what they'd lost.

There's a risk that the same thing will happen again if Gov. Paterson somehow wins approval of his modest reform proposals. Paterson's "Tier 5" pension plan, applying only to future state and local employees, would: raise the retirement age to 62 (same as the Social Security minimum); increase the pension-vesting period; require employees to contribute to the pension fund throughout their careers, and curb the practice of padding pensions with overtime. In the main, all this would simply replicate the Tier 3 and 4 benefits of the mid-'80s.

The governor has proposed more dramatic changes in police and firefighter pensions. He'd change the current "20 and out" plan -- retirement at half pay after 20 years, with no minimum retirement age -- to half pay after 25 years at a minimum age of 50. Mayor Bloomberg projected that this would save the city $200 million a year almost immediately.

Real reform, however, would go much further -- by essentially throwing out the outmoded defined-benefits model for future employees. New York should follow the lead of a few states, including Michigan, that have shifted nonuniformed government workers to defined-contribution accounts -- like the 401(k) plans that have come to dominate the private sector.

With a defined-contribution retirement system, taxpayers would no longer bear all the financial risks associated with providing guaranteed pension benefits. For the first time, public-pension costs would become both predictable and easily understandable -- and the real costs of proposed benefit increases would be transparent. With normal turnover, between a quarter and a third of state and city employees would be in the new system within a decade.

If pension reform were subject to regular contract negotiations, public-employee unions would never accept a shift to defined-contribution plans. But this is a rare case in which elected officials can alter a fringe benefit without the unions' consent -- because the state's Taylor Law, which governs public-sector labor issues, specifically prohibits collective bargaining on pensions.

Thus, retirement benefits could be changed legislatively, ensuring that future generations of New Yorkers aren't stuck with the same pension problem. Unfortunately, leading politicians like Paterson and Bloomberg continue to seek union permission to make any changes.

It's time for these officials to reassert their managerial prerogatives -- and to understand that government unions will never voluntarily relinquish the gold-standard pensions that taxpayers can no longer afford.

--E.J. McMahon is a Manhattan Institute senior fellow and -RD>directs the Empire Center for New York State Policy. ejm@empirecenter.org.

Boston is a special case in many respects, but one can learn from what it's doing in the current crisis. Chatham's spending, like Boston's, is in significant part in the grip of unions, which makes dealing with the reality of a collapsing economy difficult.

Mayor Menino's budget cuts 565 jobs to close the gap on a $140 million shortfall. It is estimated that another 200 would have been cut except for 22 of the city's unions agreeing to voluntary freezes. In Boston the head of Boston Teachers Union stoutly maintains ""We see absolutely no need to lay off a single person." In Chatham, the fire, police and school unions refused to agree to a voluntary freeze.

The mayor also raided rainy day reserves, as Chatham Selectmen propose to do for the FY10 budget.

Samuel R. Tyler, president of the Boston Municipal Research Bureau, said the number of projected layoffs is lower than he expected given the city's budget problems. He said the budget's reliance on one-time revenue - including stimulus funding, wage freezes, and reserve withdrawal - could pose problems down the road.

"There are dollars being used [in the proposed budget] for fiscal 2010 that may not be available in fiscal 2011, and fiscal 2011 is going to be no easier, and could be even more difficult, than next year," Tyler said.

In Barnstable, the proposed school budget for FY10 will be smaller than that for fiscal 2009 as will the proposed budget for all other departments. Nonetheless, up to 40 layoffs may have to be made.

"It's our intention to bring forward a budget that is balanced based on recurring revenues," [Barnstable finance director] Milne said this week. "We don't want to dig into savings for (basic operating expenses). ... It's just a matter of how far into the personnel level we have to cut to accomplish that."

Declining revenues from hotel and motel occupancy and motor vehicle and boat purchases are a concern across Cape Cod. Yesterday, Falmouth reported that on a year-to-year basis hotel/motel tax and vehicle excise tax revenues are off significantly. Such revenues and other tourist-related revenues help support Chatham's budget, which will be voted on at the Annual Town Meeting on May 11th. It is $1 million higher than the fiscal 2009 budget.

Menino proposes cutting 565 jobs
Police, schools would see biggest reductions
By Donovan Slack and John C. Drake, Globe Staff | April 8, 2009

Mayor Thomas M. Menino today will propose laying off 565 city workers, including public school teachers, police officers, and librarians, cutbacks that Boston officials said are needed to help balance the $2.4 billion city budget.

The job cuts are a response to the national recession and decreases in state aid. The budget, which Menino will present to the City Council today, requires pink slips for 212 teachers and classroom aides, 67 police officers, 44 police cadets, and 39 community center employees. Twenty-six library workers will lose their jobs, including four librarians.

On the same day one of the smallest communities in Massachusetts, Provincetown, achieved a breakthrough by sealing an agreement with all union and non-unionized school workers, Boston's Mayor Menino secured agreement with one its largest unions to forego cost of livnig increases to avoid layoffs of their personnel.

Negotiations continue with other unions as the likelihood of layoffs loom.

CCT had reported previously on the case for wage freezes made by the head of Boston's Municipal Research Bureau Sam Tyler.

City union agrees to one-year wage freeze
By Stephanie Ebbert, Globe Staff | March 6, 2009

One of the city's largest unions has agreed to a one-year wage freeze, avoiding 50 layoffs and assuring its members job protection in a time of anticipated layoffs, Mayor Thomas M. Menino is expected to announce today at his annual speech before the Boston Municipal Research Bureau.

The American Federation of State, County, and Municipal Employees Council 93 agreed to forgo raises for one year, beginning in July. A scheduled 2.9 percent wage hike will be postponed to July 2010.

AFSCME represents 1,239 city workers, including parking compliance officers, tow truck drivers, and Police Department mechanics, with the largest concentrations in the departments of public works and transportation, parks and recreation, and inspectional services. Last year, the average salary of AFSCME members was $43,820.

It became the first large union to answer the mayor's plea to halt wage increases to help stem the bleeding in the city budget, expected to be $131 million in the red next year.

AFSCME members will still get step increases for their increased tenure. The wage delay will save

Provincetown's Town Manager Sharon Lynn worked cooperatively with Provincetown's School Committee to forge an agreement for all school employees to forego wage increases for Fiscal Year 2010. Town Manager Lynn has also now contacted the police and fire unions about wage freezes and is waiting for replies. Taxpayers stressed by the economy's collapse were protesting wage increases and school costs.

Provincetown school workers OK pay freeze
By Mary Ann Bragg
Cape Cod Times
mbragg@capecodonline.com
March 06, 2009 6:00 AM
PROVINCETOWN — All employees of the town's school district have agreed to forgo pay raises for the next fiscal year.

School committee member Peter Grosso announced the agreement yesterday to the town's finance committee.

Grosso, Town Manager Sharon Lynn, school union officials and others held talks over the weekend.

The agreement includes all union and nonunion employees including teachers, janitors, cafeteria workers, office administrators and secretaries.

Union members received a 3 percent raise for the current fiscal year, based on a three-year contract, said school Supt. Jessica Waugh. They will receive no raise for the next fiscal year. They will then receive a 3 percent raise in the following fiscal year, Waugh said.

The nonunion members will forego this year's 3 percent raise. Waugh's annual salary of $106,000 is frozen as well.

The wage increases would have amounted to about $79,000, Grosso said.

The Provincetown school district is the smallest K-12 public school district in the state. It has come under fire from townspeople in recent years because of high per-pupil costs and declining enrollment.

The school district employs about 85 people, with salaries ranging from $15,000 to $69,000 for full-time positions. Its annual budget for the next fiscal year is $3.6 million, which excludes any wage increases.

The finance committee voted yesterday to recommend the school district's budget to town meeting members in April.

Lynn said that she has now contacted the police and municipal union leaders to find out if they would agree to forego pay raises for the next fiscal year. She had not heard back officially from the unions yesterday.

As of now, police union members will receive a 5 percent raise for the next fiscal year, Lynn said. Municipal union members will receive a 4.5 percent raise.

The magnitudes are different in Boston, but the similarities with the problems in Chatham are striking.

Backed by a unanimous vote of the Chatham Board of Selectmen, Chairman Sean Summers, taking a cautious look ahead at the sinking economy and the black predictions for fiscal years 2010 and 2011, proposed that town and school employees accept a voluntary freeze in compensation for 2010. Such a move would go a long way to avoiding layoffs if in fact the bad times continued and deepened.

Mayor Menino of Boston made the same plea to his employees The non-unionized and some small unions agreed to do as the mayor asked, but the large, powerful unions such as police fire and schools so far have said no. Chatham is in the same situation; the fire union has said no and the school and police unions didn't even bother to reply. The non-union workers did agree if layoffs could be avoided.

Sam Tyler, who has served as the Boston watchdog for decades now, explains why this sensible move is the best hope of avoiding layoffs. Read it and think of Chatham.

Unions should agree to city wage freeze

By Samuel R. Tyler, President, Boston Municipal Research Bureau
Boston Globe
March 4, 2009

FACED WITH the certainty of significant local aid cuts starting in July as well as the decrease of selected city revenues, Boston Mayor Thomas Menino called upon the unions to help save jobs and protect services by agreeing to a wage and step-increase freeze in fiscal 2010. Full compliance of this request would save approximately $55 million in increased expenditures.

Five small unions have agreed to the freeze, but the larger unions want a pledge of no layoffs or would rather push for new revenue sources. School unions hesitate, thinking that federal stimulus funds for school operations will preclude the need for substantial layoffs. The mayor cannot promise no layoffs given the magnitude of the budget gap in fiscal 2010, the uncertainty of new local revenues, and the nature and restrictions of the stimulus funds.

This year's city budget totals $2.4 billion, and 70 percent of the budget is tied to employee expenses. Boston officials originally estimated a budget gap of $140 million for fiscal 2010 based on increased spending and limited revenue growth. Savings from the city's hiring freeze and lower health insurance premiums along with prudent use of stimulus funds would still produce a gap of over $100 million that would require the layoff of hundreds of employees.

Even with an expected increase in property tax revenue of $61 million next year, revenue growth will be limited by state aid cuts and reductions in city revenues closely tied to the economy, such as interest on investments, motor vehicle excise, and building permits.

The biggest spending increase next year is $55 million in collective bargaining costs for salaries and step increases. Salaries for employees are to increase next year by 2.5 percent or 3.5 percent depending on the union contract. Employees not at the maximum step in their salary schedule will receive a step increase that generally adds 4 percent in addition to the contract salary increase.

Controlling spending in other budget accounts is more difficult to achieve in the short term. Spending for health insurance, pensions, debt service, and state assessments primarily for MBTA services and charter school tuitions is expected to grow by over $60 million in fiscal 2010.

A few union leaders have suggested that they will support new municipal revenue sources in lieu of a wage freeze. Yet the governor's local aid budget for next year already assumes $150 million in funds from a new 1 percent meals tax and 1 percent hotel room occupancy excise, of which Boston would receive $27 million. However, the Legislature's consideration of a gas tax to address state transportation needs could influence its willingness to also approve a statewide meals or occupancy increase.

Public-sector budgets are labor intensive, and when spending needs to be cut quickly, reducing the workforce is the first option by necessity. That was the case during the last downturn in fiscal years 2003 and 2004 when Boston's state aid was cut by 8 percent and the city reduced its employee level by almost 9 percent or 1,515 positions.

What will make this round of employee cuts difficult is that 88 percent of the 1,209 employees added to the city payroll since 2004 were in the school, police, and fire departments. The city's largest departments are too big to not play a central role in reducing workforce levels.

Cutting spending next year also will be more difficult because a few tools used last time will not be available. For example, an early-retirement incentive in 2002 enabled Boston to reduce its workforce by 476 positions but it added $62 million to the city's pension liability, which cannot be repeated.

City reserves will be used next year but they must be applied judiciously since Boston will face equally serious budget challenges in fiscal 2011. One-time federal stimulus funds for school and police operations should be targeted to provide long-term benefits in areas like technology and not to artificially prop up employee levels only to be cut in two to three years when the stimulus funding stops.

The city should continue to pursue service efficiencies and consolidations to generate savings over time, and the state should provide municipalities with new tools to support this effort. Even so, employee reductions will be the city's primary means of reducing spending, which is why the unions should do their part to save hundreds of jobs by agreeing to a wage and step-increase freeze starting in July.

In Chatham all public employees are scheduled to get raises higher than those in Boston. As in Boston, full-time public employees already get more in compensation than what half or more of the local population lives on.